Many financial institutions have invested substantial sums to build
automated teller machine (ATM) networks. In the mid-1970s, banks angled
for short-term marketing gains as they installed ATMs. At that time,
cost per transaction, data security and other practicalities frequently
took a back seat to marketing drives.

But now, as ATM networks mature, banks are eyeing ATM assets
differently. While they still hope for marketing bonuses, bankers
realize that competitive ATM installations reduce their lead-edge
potential, so the ATM spotlight has switched. Today, bankers are
asking:

* Can I simultaneously expand my network, take advantage of new
technology, and protect my previous investment in ATMs?

* If I am entering a shared-network environment, how can I enhace
data security?

* Are there low-cost options for moving machines off premises?

* What strategies can I follow to persuade a wider segment of my
customer base to use an ATM to do their own transactions?

Vendors such as NCR Corporation are sensitized to this shift, which
influences the kind of ATM products financial institutions demand. The
following overview highlights ATM trends we have identified and looks at
how new ATM features can help financial institutions meet growing
practical concerns:

Financial institutions are striving to lure automation-shy
customers and boost transaction volumes. Through improved customer
lead-through, they also are trying to increase repeat usage and reduce
"operator error" rates among the users of their ATMs.

Because mature ATM networks already have attracted most "early
adapters," bank strategies now focus on more-reticent ATM
prospects. The goal is to boost transaction volumes to the highest
feasible level, spread their network expenses, and at the same time
lower costs per ATM transaction.

Of course, feasible transaction-per-machine goals vary from
institution to institution. For instance, a loan company may establish
a monthly objective of 400 transactions per machine. Because its cost of
utilizing ATMs to service repeat loan customers is much lower than
in-office processing, a loan company's volumes don't have to
be staggering to reap substantial savings. In contrast, though, some
banks may target 3,500 to 4,000 transactions per month for in-lobby
units, and 10,000 per month or higher for the through-the-wall,
24-hour-available ATM units.

Trial Incentives Also Can Help

To achieve established goals, financial institutions can employ
target marketing and offer trial incentives. Banks with statewide ATM
networks may concentrate promotion/advertising dollars on low-usage
areas with selected themes and media aimed at older, blue-collar,
less-educated or non-Enlgish-speaking populations. To encourage
customers to try ATMs initially--or to experiment with non-withdrawal
transactions--some banks are programming microprocessor-controlled ATMs
to print "prize" notices on customer receipts. Some
promotions are highly sophisticated. For example, ATMs may be
programmed to print a different letter on each type of transaction
receipt. To win a prize, customers must attempt several transactions to
accumulate enough receipts to be able to spell a word.

In recent months, in-lobby ATMs have been gaining popularity as a
means of reaching "second-tier" customers--those who prefer
the security and comfort of a bank lobby to do banking business.

However, some bankers have voiced the opinion that, in order to
truly be a teller replacement, the in-lobby ATM must provide
four-denomination dispensing, such as twenties, tens, fives and ones, as
well as accept all types of deposits and payments, while at the same
time taking up no more space than a human teller would take.

Experiments with placement of in-lobby ATMs in the traditional
teller counter have met with mixed results. Some banks feel that a
"teller replacement" must be located exactly where the human
teller was previously found to the highly successful.

Others believe that in high-volume locations, where queuing lines
are used to direct teller traffic, a better placement would be near the
entrance to the teller queue. This would force the customer to choose
either the fast-service ATM or stand in line for the human teller, thus
encouraging ATM usage by those who don't want to wait.

Machine Flexiblity Is Needed

To adequately serve this market, vendors must provide ATMs that
work eqaully well for in-counter line or free-standing placement.
Another plus would be an ATM capable of being easily and inexpensively
relocated, either within the branch location or to new locations, as
banks continue to experiment in their search for the best possible
customer-service combinations.

But innovative marketing strategies and additional in-lobby ATM
placements are just part of the answer in wooing new prospects. To
prompt repreat usage, banks must pay attention to human factors. People
come back to ATMs again and again only if user-friendly ATMs persuade
them to do so. Both voice-response and CRT graphics features are
powerful new persuaders.

Numerous studies indicate that people absorb information far more
easily and quickly when written instructions are bolstered by visual and
verbal clues. For instance, if customers hear a voice telling them to
"insert your deposit envelope" while they simultaneously by
CRT graphics message accompanied by CRT graphics that show an envelope
being properly inserted, the odds are they'll quickly grasp what
must be done.

Use of graphics also minimizes the amount of text that must be put
on the CRT screen. Without a picture, the CRT message might have to
spell out the location of the envelope slot and how the envelope is to
be inserted. A picture supplants such extra verbiage and minimizes
reading requirements. This speeds transactions for all and aids
customers who have difficulty reading English.

Graphics capabilities also can be tapped to display double-size
characters. This feature can make ATM transactions much easier for
those individuals with visual impairments.

Using graphics capabilities to provide multi-lingual support is
another option. Institutions with messages displayed in Spanish,
French, or even Chinese or Arabic. Some West Coast banks now use ATMs
equipped with both Chinese and standard alphanumeric character sets.
The human-voice messages relayed by ATMs can be multi-lingual, too, as
an additional customer service.

Voice Helps Correct Errors

But the most significant use of voice may be in the remedial mode.
Here voice messages are triggered by customer errors, such as keying the
wrong personal identification number (PIN) or requesting too large
withdrawal. The voice explains what's wrong and how to correct the
mistake.

Relying on voice messages for remedial instruction serves two
purposes. First, it is non-frightening assistance for confused ATM
novices. Second, it quickly alerts regular ATM users, who may not look
at CRT screens after memorizing common sequences, that something's
wrong and out-of-sync. This speeds recovery and transaction throughput.

Naturally, such features have marketing potential. Voice messages
humanize ATMs and allow banks to personally thank customers, relay
seasonal greetings, and cross-sell. When new cars go on display in
dealer showrooms, banks can pull from their libraries of voice cassettes
one that contains a reminder of the bank's auto loan program.

Similarly, financial institutions can use graphics to reinforce an
image by employing high-quality custom logos, symbols or other artwork programmed into non-erasable microchips. However, we see enhanced
customer lead-through as the major incentive for adding graphics and
voice-response capabilities to ATMs, with marketing appeal becoming a
nice spin-off benefits.

Network Size, Age Affect Choice

Incidentally, we see the size and age of ATM networks as major
factors influencing when banks decide to embrace such new ATM
technology. Let's say, for example, that a bank has a 100-plus
machine network including many ATMs that are more than three years old.
Though voice-response and CRT-graphics upgrade kits are available for
older units, this bank probably would postpone adding new capabilities
until it replaced its base of older machines. However, an institution
with predominantly new units that needed to install a number of
additional ATMs would be the most likely to upgrade immediately.

Banks are attempting to speed the most common transactions made by
a seasoned customer base. As marketing programs succeed and lines form
behind ATMs, banks are trying to solve an emerging customer-service
problem--lengthy wait-time for ATM access. In this area, many small
changes can make a large difference in cumulative throughput time.

Perhaps Japanese banks are the most aggressive. Because their
country's money has properties that allow it to be electronically
counted, customers can make cash deposits without envelopes. This means
customers don't need to fill out envelopes and bank staffers
don't need to later open envelopes and count their contents.

Transaction Sequence Altered

On the home front, one California bank has altered the sequence in
which it presents transaction screens to customers. Since withdrawals
are the most common transaction, the first screen immediately gives
customers the choice of which account they wish to access for a
withdrawal. Customers wanting to make other transactions simply move to
the other transactions simply move to the next screen. The positive
effect of eliminating one step in the withdrawal sequence is the
speeding up of 70 percent of total customer transactions.

US financial institutions also are relying on specialized keys to
streamline routine transactions. For instance, if a $25 withdrawal is
the most common transaction, a "Fast Cash" key is
pre-programmed to deliver this amount. If, over time, $50 replaces $25
as the most commonly requested withdrawal sum, the "Fast Cash"
key can be re-programmed for the $50 amount.

Some institutions have taken this feature a step further,
associating pre-set customer name fields and dollar amounts with
customer accounts in their central computer files. In this case, when a
customer requests "Fast Cash," the computer looks at the file
to determine his or her regular withdrawal, say $100, and tells the ATM
to deliver this amount. In addition, when the ATM asks which account
should be tapped for withdrawal, it displays choices by account
names--"Net Eggs", "Groceries," and other such
personalized names assigned by the customer to various savings and
checking accounts.

Programming ATMs to permit customers to insert a bankcard from the
previous transaction is another common tactic to reduce customer
wait-time at high-volume ATM locatins, while still retaining the
protection afforded by the shield during less busy times.

Because computer programming and backroom ATM processing impact ATM
transaction costs, banks are searching for ways to streamline support
requirements. Historically, balancing ATM deposit/payment envelopes has
been a time-consuming operation. When financial institutions beging
sharing ATMs, the process can become even more cumbersome, as envelopes
must be sorted by institution. Manual processing also requires
customers to do more work. They are asked to print routine data such as
name, bank (if it's a shared network), account number and deposit
amount on envelopes.

New programmable ink-jet printing capabilities enable ATMs to image
directly on envelopes all information needed to balance deposits,
speeding processing and reducing transaction time by eliminating the
need for customers to fill in data. Printing options available now
include account and institution numbers, date/time, transaction type and
amount.

Data Imaged on Coin Envelopes

Because ink-jet printers don't rely on impact-printing
methods, data can be imaged on envelopes holding coins. Besides
simplifying by-institution sorts in a shared environment, the printing
option reduces the time tellers need to balance deposits in any
environment, since there's no need to reference separate journal
tapes.

On the computer programming side, new developments are easing the
ATM support burden. One is the appearance of ATM emulation models. When
a bank has a sizable on-line network linking one vendor's ATMs to
its host computer, it is seldom anxious to invest more programmer hours
to develop software interfaces for another vendor's products. For
starters, its programming staff already may be booked 18 months ahead
with pressing projects.

However, this same bank may want to take advantage of features a
second vendor has to offer, perhaps a compact ATM model ideal for
off-premise installations where floor space is scarce. Emulation models
solve such dilemmas, permitting banks to select ATMs based on features
and price, not programming overhead. For example, one currently
available emulation series is plug-to-plug compatible with existing IBM 3624 and Diebold 910 networks, and so requires no host/controller
changes.

Financial institutions (and retailers) are increasingly joining
shared ATM networks to reduce service delivery costs. Many locations
(office buildings, shopping malls, grocery stores) have enough traffic
to support one ATM shared by several institutions, but they have
insufficient volume to support multiple ATMs. This is one of the
attractive economic incentives for establishing shared regional ATM
networks.

Another is the desire of some lead area banks to recoup development
expenses they've made to bring up sophisticated on-line ATM
networks. By acting as ATM switches for correspondents and smaller
banks, such institutions gain a new source of fee income.

Sharing Does Create Hazards

While there are many advantages in sharing ATM systems, there are
also some hazards. One of these is data security. In a shared
environment, a bank may not want to give the ATM switch
operator--possibly another bank--its customers' PIN numbers.
However, if the switch does not have these numbers, it can't verify
a given customer's identity. As a result, the switch must transmit
PIN and account numbers to the institutions that assigned these numbers.

When such transmissions--ATM to switch and switch to user
banks--are sent in clear text over telephoen lines, potential security
risks on this sensitive data mount. However, these risks now can be
eliminated by using PIN block-encryption techniques. For instance, all
our currently available ATM models are capable of data encryption to
meet requirements of selected VISA and ANSI communication standards.

Sharing Is Changing ATM Mix

The shared-network trend also is increasing demand for ATM models
that are practical and cost-effective in environments where in-the-wall
units are not. This trend, combined with a move toward less-stringent
branch-banking restrictions and propriertary network drives to boost ATM
transaction volumes, is definitely altering the mix of ATMs being
installed. We see increasing evidence of this change in requests for
information and in the incoming equipment orders for these models.

This changing ATM mix brings us back to our original premise. It
reflects the desire of financial institutions of more specialized
machines tailored to meet the needs of different environments is a
practical solution to the changing needs in the marketplace.

Like most electronic products, ATMs have been dropping in price.
This also is sparking demand for more units in more varied locations. A
"fully-featurized" ATM with CRT graphics and voice-response
now costs about 35 percent less than a bare-bones off-line cash
dispenser did when ATMs were first introduced. With lower equipment
costs, banks now are able to cost-justify shorter ATM depreciation time
schedules and embrace new ATM technology more quickly.

COPYRIGHT 1985 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.